Interpump Gp Unsp/Adr

Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the InterPump First Quarter 2025 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Elizabeth Kunyaska Head of Investor Relations. Please go ahead, Madam.

Thank you. Good afternoon. I am Elisabetta Kunjaska, Head of Investor Relations of Interpump Group. And welcome to this first quarter 2025 Financial Results Conference Call. As usual, I must draw your attention to the disclaimer slides inserted in the annexed part of the presentation that I hope you were able to download from the website. Now I would like to leave the floor to Mr. Marazzi, the Group Chief Executive Officer.

Thank you, Ms. Unianska, and thank you to all of you for joining our call. Once again, past and future numbers. Past numbers. On organic basis, in the first quarter of 2025, the impact of an 8% sales decline was a 12% EBITDA decrease, with a 90 bps EBITDA margin dilution. Exactly one year ago, always on organic basis and excluding from the first quarter 23 the positive one-offs, we recorded a sales decline of 9% and an EBITDA decline of 14% with a 130 basis point dilution in terms of EBITDA margin. So, despite ongoing sales decline, which made more difficult to adjust cost basis and leveraging our operating flexibility, we were able to protect our profitability even better than last year. Moving to future numbers, both the results of the first quarter 2025 and the sales evolution for the month of April are in line with our expectation. And therefore, we are pleased to confirm our 2025 organic sales guidance that is between minus five and plus 1%. In terms of profitability, as usual in May, We are also providing today more precise indication and we are expecting an EBITDA margin for the full year between 22 and 22.5%, confirming once again our most important goal and focus, that is to protect our profitability in every market environment. I will add more colour on our 2025 expectations in the second part of my speech. Now, let's focus with more details on most important first quarter 25 financial KPIs, sales, EBITDA, and free cash flow generation. In terms of sales, the first quarter 25 confirmed trends that have been ongoing for more than a year. The drawing division is recording a normalization phase after the exceptional post-COVID boom. Water jetting is in the recovery phase after COVID. This evolution is absolutely consistent with the different industrial and commercial features of the two divisions, while the magnitude and length of these evolutions are absolutely unusual. In hydraulics, the 14% sales drop of the first quarter of 2025 marked the sixth consecutive quarter of revenue decline and the fifth in which the drop was in double digits. with even a peak of minus 17% in the third quarter of 2024. Such a prolonged negative trend is absolutely unusual in the hydraulic business. The water jetting on the opposite recorded a very healthy organic growth after four consecutive years of very positive evolution and performance. Going into details, we feel that the hydraulic division has touched the bottom in the second half of 2024, and that we should now expect, hopefully, a sequential improvement during the year. Among the most important categories, generic dealers, agri, air moving machines, and construction did not deteriorate sequentially, while others, for example, other industrial sectors, were less negative. In the water jetting division, food and beverage, that is by far the most important market application, drove the growth with an almost 10% increase. And, worth to be mentioned, is the growth of shipyard and marine market application that in two quarters reached more than 5% of divisional sales. This is the strength and the beauty of Interpump Group's diversification strategy. We started many years ago with high pressure pumps and more recently with flow processing. And these are the results. In terms of geographies at group level, the most important countries where we are, US, Italy, and Germany, recorded a performance roughly in line with the one of the previous quarter. Vice versa, China recorded, China recovery seemed to be confirmed with two positive quarters in a row after many of decline. Once again, it's the power of diversification. Water testing business and through processing precisely that is driving the growth. Moving now to ABDR, I would like to come back to what I anticipated you in my introduction. We protected our profitability better in the first quarter 2025 than in the first quarter 2024. We recorded organic margin dilution of 90 basis points, lower than the 130 basis point dilution recorded last year in the first quarter. It's evident that 90 basis point less is better than 130 basis point less. But what I would like to underline is that these better results were achieved in a completely different environment, a much worse one. The decline in the first quarter of 2025 is correlated to an 80% sales decrease that came after a 14% organic sales decline recorded in 2024. Obviously in hydraulics the effect of the countermeasures was different according to sales decrease magnitude. In some product verticals we still recorded a material sales decrease and therefore profitability impact was more than proportional. In other product verticals we recorded a profitability decline more or less in line with sales decline and some other verticals even recorded a profitability increase compared to a minimum sales decrease. These are the benefits of the group business model flexibility, and from a broader point of view, from group diversification, which characterized the group and every single division. To be noted, I'm very pleased to inform you that the last acquired company, Hydrover, gave a positive contribution both in terms of sales and profitability. and we are super happy of this deal. Switching to the WaterJet division, profitability results are confirming that our capability to manage business inefficiencies coming from sales mix and the booming demand is improving. Let me remind once again these two concepts. Complete systems and orders made for projects are complex and integrated products that are realized following more complex and less standardized procedures. Therefore, theoretically, I repeat myself, theoretically, they could have a proportionally lower profitability if we do not manage the entire process in an accurate way. Booming demand, excluding 2021 distortion, the last three years demand has been perhaps the strongest of the last decade. and somehow caught up by surprise in terms of volumes and time concentration. We adjusted our production processes as fast as possible to satisfy customers' demands. We changed labor shifts, we moved colleagues from one specialized process to another, and perhaps less familiar. We hired new colleagues and trained them as fast as possible, and we had to find additional specialized third-party suppliers. who are fewer in number in comparison with the hydraulic division. But unfortunately, speed does not always correspond to effectiveness, and therefore we started to work to minimize these inefficiencies and our efforts are gradually paying off. In second quarter 2024, we had an impact of 100 basis points. In the third quarter of 50, in the fourth quarter of 20, and now we have completely offset them. Hopefully, the next step would be to fully benefit from sales increase. In the meantime, even in this division, no dilution impact from the newly consolidated companies, the two Chinese Edons and Alpha Valvole, that are perfect fit in our fuel processing business. Moving now to the cricket flow generation. I can say that this could seem as the only disappointing result of the quarter, because free cash flow went slightly down from 35 to 29 million euro, after many quarters of improvement. Therefore, it's important to focus on the different components. Cash flow from operating activities went down by around 11%, impacted by profitability decrease. while trade working capital absorption decreased by more than 50% and capex by more than 11%. The most important cause of the lower cash generation is a different timing of advance payments from customers. Advance payments could create some swings between quarters from a financial point of view, but this gives us two very important advantages, especially in the process part projects. We have a very important edge against the risk of not receiving the payment from customers, a risk that can be particularly high in new customer or in new market, and we avoid liquidity strain in long production cycles and processes. Both advantages are more important than some quarterly swings, which will be smoothened during the year. Summarizing another quarter of trade working capital lower absorption and capex reduction is a clear evidence that the group is delivering its commitment to improve these KPIs after the extraordinary peak of 21, 22, 23. We believe, therefore, that the first quarter of 25, the free cash flow generation is satisfying and in line with our goal to repeat the excellent level of free cash flow generation of 2024. Moving now to acquisition, short updating as usual on our most recent acquisition, that is to say, Hildrever. As you probably remember from last November conversation, we bought this Brazilian company for three reasons and with the aim to reach one objective. Reasons are, first, the product that is in total synergy with group portfolio, double acting and special cylinders. Second, a motivated and competent management team who was able to confirm profitability at excellent level despite a 40% sales drop in two years, driven mainly by construction and agriculture exposure. And third, the chance to strengthen group presence in a major country like Brazil, one of the most important South American markets with all global players present. The goal and objective to support growth opportunities with both a renewed focus on consolidated customers and new application for new customers, with an example in cranes and bus link. How are these things evolving? In the first quarter, in Brazilian reais, sales are growing by around 20% and profitability is well above the divisional average. So the perfect fit between Interpump and Hydrover I envisaged you last November is absolutely confirmed by numbers. And I can assure you that we are working to find new perfect fits and other opportunities. Please let me remind you what perfect fit means. Technological excellence, consistency with group strategy, respect of our M&A and financial criteria. I did not quote Dimension because Dimension doesn't matter. These three features don't matter and we will not compromise with because it was their strict respect that allowed us to implement a successful acquisition track record year after year and brought Interpam Group to this level of success. Most of our acquisitions were almost immediately the perfect fit, like Hydrover. Some of them required a bit of work. Few of them required more efforts than initially planned. This is because they come out from a distressed situation, with an example of Takarada in Brazil in 2011 or GS Hydro in 2018, or because at start, or almost at conclusion of the integration plan, the related market turned out to be dramatically negative. For example, Waikato and White Drive respectively. But all of them, sooner or later, with lower or higher efforts, revealed themselves to be the perfect fit. And this is confirmed by the fact that we never, never disposed, in the last decade, acquired companies. Our successful track record in terms of acquisition is based on the strict respect, somebody could even say obsession, and I would not be offended, Of these three features, technological excellence, consistency with group strategy and respect of our M&A and financial criteria. Now the usual overview on most recent market trends and 2025 expectations. April was in line with our organic expectations for the entire year in terms of both trends and evolution. As for trends, water jetting strength was confirmed Hydraulics weakness was confirmed. In terms of evolution, in comparison with the first quarter 2024, water jetting was a bit stronger and hydraulics was less weak. Anticipating one of your possible questions, accordingly, to monthly sales data at our disposal, it seems that April was not influenced, neither positively nor negatively, by the two most important economic events of 2025 start. The German infrastructure fund, approved in the middle of March, and the tariffs war announced in April. A short digression on this latter point. Tariffs war. Local and or regional production for most or even Oil production phases has always been one of the most important milestones of Group International Extension to ensure the best possible customer service. And in terms of acquisition abroad, we both perfect it simply that. Therefore, the vast majority of our American sales are produced locally. And what is important in the U.S. to support local production is coming mostly from Group European companies. There is a lot of confusion on this topic, and therefore it is very difficult to say something rational and reasonable. In any case, we will have a very clear and concrete approach. Our group is ready to adapt countermeasures to minimize and counterbalance impacts on profitability. In the short term, from surcharges to full price increases, and in the medium term, increasing local manufacturing activity whenever possible and convenient. The objectives, possible and convenient, mean that in any case we would never compromise the quality of group products and the service that we are delivering to our customers. After this necessary digression, let's go back to 2025 expectations. First quarter results and April sales evolution are a clear support for our February guidance that we are confirming today. On an organic basis, we are expecting a turnover variation between minus 5 and plus 1, and a positive perimeter change impact of around 2%, with the reported sales, therefore, in line with 2024. As usual, with an higher visibility given by a quarter of reported data, we are adding to the sales guidance the profitability guidance, with an EBITDA margin between 22 and 22.5%. One important clarification to avoid any kind of misunderstandings. The comparison basis of this range is the 2024 reported the median margin of 22%. No adjustment, no change, nothing. Only reported numbers as always. We hope that you will read these numbers or we are reading them. In the worst possible case of a 5% sales decrease, it is a 5% decrease after a 9% decrease of 2024, We are expecting to confirm 2024 results in terms of profitability. We are expecting to confirm our excellent profitability level once again. In terms of cash regeneration, as explained before, first quarter results are clear evidence of group commitment to proceed in the normalization process of both trade working capital and capex. And therefore we confirm the goal to consolidate and hopefully improve The cash flow generation achieved in 2024. If in February, 2026, we would be able to deliver these results, we would be once again very proud as they would once again confirm two fundamental milestones of group strategy, diversification and business model flexibility. We are at your disposal for any questions that you may ask.